Alabama County Biggest Muncipal Bankruptcy in US History

Yesterday, drowning in red ink, Alabama’s Jefferson County filed for bankruptcy, becoming thereby the biggest municipal bankruptcy in U.S. history. With more than $5 billion in total indebtedness, the Chapter 9 filing on Wednesday surpassed that filed by Orange County California, in 1994.

In so doing, Jefferson County joins three other U.S. cities to go bankrupt: Vallejo, California; tiny Central Falls, Rhode Island; and the most recent, Pennsylvania’s capital of Harrisburg.

Melinda Dickinson reports for Reuters, Nov. 10, 2011, that commissioners of Jefferson County – home to Birmingham, the state’s biggest city and economic powerhouse — voted 4-1 to declare bankruptcy after meeting behind closed doors for two days in a last ditch-attempt to restructure its debt out of court.

Jefferson County, with a population of about 660,000, contains some of the richest neighborhoods in the country as well as pockets of urban poverty and blight.

The county’s debt escalated in the mid-2000s when bond issuance deals to upgrade its sewer system soured amid widespread corruption, bribery and fraud charges that led to some 22 convictions.

Former Birmingham mayor Larry Langford

Larry Langford, a Democrat and former mayor of Birmingham, was sentenced to 15 years in prison last year for his role in corrupt business deals that fueled the multibillion-dollar sewer debt. Langford presided over the county commission during the height of the bond swaps that led to the run-up of the massive debt.

There are also widespread fears that the bankruptcy filing could raise borrowing costs for other Alabama governments and school districts. Efforts to forestall Jefferson County’s bankruptcy had already triggered layoffs of government employees and cuts in municipal services.

The bankruptcy filing will also add to concerns about the risks in the $3.7 trillion U.S. municipal bond market.



5 responses to “Alabama County Biggest Muncipal Bankruptcy in US History

  1. This is just the tip of the iceberg.

    What concerns me is that local government bankruptcies are going to start snowballing, and state governments don’t have the means to bail them out.

    Neither does the federal government.



  2. Well Dave, you have to look at it like this…They voted the crooks in and maybe, just maybe they have learned a lesson…Wait, Ohio’s turn is coming, the voters and all else will do without so the union thugs can be paid…


  3. From what I understand, the State of Rhode Island is on the brink.


  4. Thank you, Dr. Eowyn, for setting forth the importance of this historic bankruptcy filing, which is a rarety, Chapter 9! Amazing! I agree with everyone’s thinking, that subsequent filings in other jurisdictions may snowball.


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